5 Learning ObjectivesWhen you complete this chapter you should be able to:Explain the strategic importance of the supply chainIdentify six sourcing strategiesExplain issues and opportunities in the supply chainDescribe the steps in supplier selection

6 Learning ObjectivesWhen you complete this chapter you should be able to:Explain major issues in logistics managementCompute percent of assets committed to inventory and inventory turnover

9 Supply-Chain ManagementThe objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer

10 The Supply Chain’s Strategic ImportanceThe coordination of all supply chain activities, starting with raw materials and ending with a satisfied customerIncludes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customer

18 Many Suppliers Commonly used for commodity productsPurchasing is typically based on priceSuppliers compete with one anotherSupplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

19 Few SuppliersBuyer forms longer term relationships with fewer suppliersCreate value through economies of scale and learning curve improvementsSuppliers more willing to participate in JIT programs and contribute design and technological expertiseCost of changing suppliers is hugeTrade secrets and other alliances

21 Vertical IntegrationDeveloping the ability to produce goods or service previously purchasedIntegration may be forward, towards the customer, or backward, towards suppliersCan improve cost, quality, and inventory but requires capital, managerial skills, and demandRisky in industries with rapid technological change

23 Keiretsu NetworksA middle ground between few suppliers and vertical integrationSupplier becomes part of the company coalitionOften provide financial support for suppliers through ownership or loansMembers expect long-term relationships and provide technical expertise and stable deliveriesMay extend through several levels of the supply chain

24 Virtual CompaniesRely on a variety of supplier relationships to provide services on demandFluid organizational boundaries that allow the creation of unique enterprises to meet changing market demandsRelationships may be short- or long-termExceptionally lean performance, low capital investment, flexibility, and speed

28 Risk and Mitigation TacticsTABLE 11.3Supply Chain Risks and TacticsRISKRISK REDUCTION TACTICSEXAMPLELogistics delays or damageMultiple/redundant transportation modes and warehouses; secure packaging; effective contracts with penaltiesWalmart, with its own trucking fleet and numerous distribution centers located throughout the U.S., finds alternative origins and delivery routes bypassing problem areas.DistributionCareful selection, monitoring, and effective contracts with penaltiesToyota trains its dealers around the world, invoking principles of the Toyota Production System to help dealers improve customer service, used-car logistics, and body and paint operations.

29 Risk and Mitigation TacticsTABLE 11.3Supply Chain Risks and TacticsRISKRISK REDUCTION TACTICSEXAMPLEInformation loss or distortionRedundant databases; secure IT systems; training of supply chain partners on the proper interpretations and uses of informationBoeing utilizes a state-of-the-art international communication system that transmits engineering, scheduling, and logistics data to Boeing facilities and suppliers worldwide.PoliticalPolitical risk insurance; cross-country diversification; franchising and licensingHard Rock Café reduces political risk by franchising and licensing, rather than owning, when the political and cultural barriers seem significant.

30 Risk and Mitigation TacticsTABLE 11.3Supply Chain Risks and TacticsRISKRISK REDUCTION TACTICSEXAMPLEEconomicHedging to combat exchange rate risk; purchasing contracts that address price fluctuationsHonda and Nissan are moving more manufacturing out of Japan as the exchange rate for the yen makes Japanese-made autos more expensive.Natural catastrophesInsurance; alternate sourcing; cross-country diversificationToyota, after its experience with fires, earthquakes, and tsunamis, now attempts to have at least two suppliers, each in a different geographical region, for each component.

31 Risk and Mitigation TacticsTABLE 11.3Supply Chain Risks and TacticsRISKRISK REDUCTION TACTICSEXAMPLETheft, vandalism, and terrorismInsurance; patent protection; security measures including RFID and GPS; diversificationDomestic Port Radiation Initiative: The U.S. government has set up radiation portal monitors that scan nearly all imported containers for radiation.

33 Managing the Integrated Supply ChainBullwhip effect occurs when orders are relayed through the supply chain increasing at each stepIssuesLocal optimization can magnify fluctuationsIncentives push merchandise into the supply chain for sales that have not occurredLarge lots reduce shipping costs but increase inventory holding and do not reflect actual sales

35 Managing the Integrated Supply ChainOpportunitiesCollaborative planning, forecasting, and replenishment (CPFR) through the supply chainBlanket orders against which actual orders are releasedStandardization

36 Managing the Integrated Supply ChainOpportunitiesPostponement withholds modification as long as possibleElectronic ordering and funds transfer speed transactions and reduce paperworkDrop shipping and special packaging bypasses the seller and reduces costs

37 Building the Supply BaseSupplier evaluationFinding potential suppliersDetermine likelihood of their becoming good suppliersSupplier certificationQualificationEducationCertification

38 Building the Supply BaseSupplier developmentIntegrate the supplier into the systemQuality requirementsProduct specificationsSchedules and deliveryProcurement policiesTrainingEngineering and production helpInformation transfer procedures

41 Building the Supply BaseE-ProcurementSpeeds purchasing, reduces costs, integrates supply chainOnline catalogs and exchangesStandard items or industry-specific web sitesOnline auctionsLow barriers to entryReverse auctions for buyersPrice not always the most important factor

42 Logistics ManagementObjective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activitiesIs a frequent candidate for outsourcingAllows competitive advantage to be gained through reduced costs and improved customer service

43 Shipping Systems Trucking RailroadsMoves the vast majority of manufactured goodsChief advantage is flexibilityRailroadsCapable of carrying large loadsLittle flexibility though containers and piggybacking have helped with this

44 Shipping Systems Airfreight WaterwaysFast and flexible for light loadsMay be expensiveWaterwaysTypically used for bulky, low-value cargoUsed when shipping cost is more important than speed

49 Distribution ManagementThe outbound flow of productsRapid responseProduct choiceServiceIncreasing the number of facilities generally improves response time and customer satisfactionTotal costs are important

52 Distribution ManagementFacilities, packaging, and logisticsSelection and development of dealers or retailersDownstream management as important as upstream management

53 Ethics and Sustainable Supply Chain ManagementPersonal ethicsCritical to long term success of an organizationSupply chains particularly susceptibleEthics within the supply chainEthical behavior regarding the environment

54 Institute for Supply Management Principles and StandardsPromote and uphold responsibilities to one’s employer; positive supplier and customer relationships; sustainability and social responsibility; protection of confidential and proprietary information; applicable laws, regulations, and trade agreements; and development of professional competenceAvoid perceived impropriety; conflicts of interest; behaviors that negatively influence supply chain decisions; and improper reciprocal agreements

55 ISM Ethical StandardsPERCEIVED IMPROPRIETY. Prevent the intent and appearance of unethical or compromising conduct in relationships, actions and communicationsCONFLICTS OF INTEREST. Ensure that any personal, business or other activity do not conflict with the lawful interests of your employerISSUES OF INFLUENCE. Avoid behaviors or actions that may negatively influence, or appear to influence, supply management decisions

56 ISM Ethical StandardsRESPONSIBILITIES TO YOUR EMPLOYER. Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver value to your employerSUPPLIER AND CUSTOMER RELATIONSHIPS. Promote positive supplier and customer relationshipsSUSTAINABILITY AND SOCIAL RESPONSIBILITY. Champion social responsibility and sustainability practices in supply management

59 Establishing Sustainability in Supply ChainsReturn or reverse logisticsSending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposalClosed-loop supply chainProactive design of a supply chain that tries to optimize all forward and reverse flowsPrepares for returns prior to product introduction

70 Benchmarking the Supply ChainBenchmarking usefulMay not be adequateAudits may be necessaryContinuing communication, Understanding, Trust, Performance, Corporate strategyFoster a mutual belief that “we are in this together”

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